Earlier this year, the IRS Whistleblower Office and its Director Lee Martin issued guidelines for the use of 6103(n) contracts with tax whistleblowers. This has been a somewhat controversial area in the past, since it requires balancing the privacy rights of the taxpayer.
In favor of more IRS-whistleblower communication, Senator Grassley has been criticizing the IRS for its lack of communication with whistleblowers. In March, Senators Grassley and Wyden introduced the IRS Whistleblower Improvements Act of 2017 that would, inter alia, provide for the exchange of information with whistleblowers where it would be helpful to the investigation. We expect this memorandum was issued in response to that proposed legislation, or if not, at least with awareness of it.
The use of more 6103(n) contracts will no doubt be welcomed by whistleblowers. The decision to use a 6103(n) contract rests with the Business Operating Division of the IRS.
Before entering into a 6103(n) contract, the IRS will consider a secondary debriefing with the whistleblower to ensure that any submitted information is clarified and the scope of the knowledge of the whistleblower clear.
The exam team must also consider whether ongoing interaction with the whistleblower and disclosure of return information would benefit tax administration and the efficient resolution of the issue. If the whistleblower is employed at the target and has access to their privileged or confidential information, entering into a 6103(n) contract might be inappropriate.
If the Exam team believes a 6103(n) contract is appropriate, and the request is approved by the executive as well as the Business Operating Division representative, then the whistleblower or their representative will be approached to confirm that the whistleblower wants to enter into the contract.
The Whistleblower must agree that any return information will not be used or disclosed by the whistleblower without the express written authorization of the IRS. They must also comply with all conditions for preventing unauthorized disclosure or inspection of the information shared. The Whistleblower can become subject to civil and criminal penalties for the unauthorized inspection or disclosure of return information.
Information shared with the whistleblower is limited to only those parts or portions of the returns or return information that must necessarily be disclosed. If the services can be performed at an IRS office without the physical release of returns or return information, the IRS will do so and retain control of the documents.